Deal would forgive federal disaster recovery loans

Deal would forgive federal disaster recovery loans

Advocate staff photo by ELIOT KAMENITZ --- U.S. Sen. Mary Landrieu, D-La., is working with Southern University of New Orleans to have some of the school's federal loans forgiven. The school received $44 million to build a student housing facility. SUNO Chancellor Victor Ukpolo stands Tuesday in one section of the student housing facility.

NEW ORLEANS — On the outskirts of the Southern University New Orleans campus, administrators believe a key component for the future are the 21 buildings with the bright green rooftops overlooking Lake Pontchartrain.

The buildings, SUNO’s new student housing that are intended to revitalize the hurricane-ravaged campus, are at the heart of an agreement struck with the federal government that could result in saving many millions of dollars.

The loan modification agreement is part of a series of recent transactions to modify or forgive more than $400 million in federal loans for southeastern Louisiana. The loans were still pending after nearly eight years since hurricanes Katrina and Rita.

First, a deal was finalized between the historically black colleges of SUNO, Xavier University and Dillard University and the U.S. Education Department, the Treasury Department and the White House Office of Management and Budget.

Then, Sen. Mary Landrieu, D-La., successfully inserted into the federal budget continuation legislation wording that set up the forgiveness of nearly $300 million in community disaster loans that were still hanging over several Louisiana parish governments, school systems, sheriff’s departments and more.

The argument is that areas such as Jefferson and St. Tammany parishes were essentially punished by getting up and running more quickly after Katrina and Rita. Their sales tax revenues temporarily increased as victims bought new appliances and paid for restoration construction. The hike in sales tax receipts kept some agencies and institutions from receiving disaster loan forgiveness.

The Federal Emergency Management Agency has until April 2014 to finish tweaking its rules and formula so the loans can then be forgiven.

Jefferson Parish government alone is looking to forgive nearly $55 million in loans.

“This puts us in a significantly improved position to get most, if not all, of it forgiven,” Jefferson Parish President John Young said. “Without this (change), it’s an extra tough burden on already strained finances ... It would mean maybe a reduction of labor, a reduction of services.”

At SUNO, Chancellor Victor Ukpolo credited Landrieu for pushing through legislation to allow for certain loans to be modified so that much of the loan debt is forgiven after a number of years.

“These academic institutions are still recovering from Hurricane Katrina, and repaying these loans under the previous structure would have been a serious financial setback,” Landrieu said in an email response.

Ukpolo explained that, in 2007, SUNO negotiated a $44 million loan with the federal government to build student housing — just under 700 beds total.

SUNO, which has traditionally been a commuter school, is making strides to become a residential campus. The goal is to get the school back to its pre-Katrina enrollment of more than 3,600 students. SUNO currently is about 400 students shy of that mark.

The details of the deal reached last month allow SUNO to stop payments on their student housing loan through 2018. The five-year freeze should save the school about $7.5 million Ukpolo said.

“We are expected to reinvest that $7.5 million back into SUNO,” he said. “We are starting to look at all the areas where we can improve. I’m talking about student life, retention, recruitment and our academic offerings.”

The idea is to use the money to make SUNO attractive enough to fill their new student apartments.

In three years, the maximum number of students living in student housing is about 225 — less than one third of the total 699 beds available.

The next phase of SUNO’s loan modification starts in 2018. At that point, Ukpolo said SUNO’s monthly debt payment would be set at a maximum of 3 percent of the school’s operating budget, or $47,500 in today’s dollars.

Under the terms of the deal, the federal government would subtract that new monthly loan payment from the original monthly payment of roughly $118,000 and put the difference — about $70,500 per month — in a placeholder account until 2037 when the deal expires.

The plan calls for the federal government to write off the balance of the placeholder account, which is a savings of roughly $25 million for the school, Ukpolo said.

Other levels of education are expected to benefit as well. No government body is affected by the community disaster loan forgiveness more than the St. Tammany Parish School Board, which is hoping to have up to $67.8 million of its loans forgiven.

St. Tammany School Board Superintendent Trey Folse said much was invested shortly after Katrina to ensure the damaged schools were quickly repaired and reopened.

“The thought was, ‘If we can get our schools back up, the people will come back,’ ” Folse said.

The plan largely worked and having the loans forgiven next year would play a critical role in improving the school system’s tight finances and keep class sizes from growing significantly, Folse said.

Similarly, Plaquemines Parish President Billy Nungesser said his parish government could save nearly $9 million and more than $3 million for the sheriff’s department.

“It comes at a critical time when we’re scrapping together what we can with flood elevation and increased flood insurance,” Nungesser said. “It absolutely would affect services and flood protection and everything we’re funding on our own.”